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Posted, January 3rd, 2005
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ranking of top businesses in OIC member countries
is sure to validate the obvious, such as dominance
of the energy sector, but at the same time
such a ranking can be expected to reveal emerging
brands, industries and regional clusters.
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To
derive such insights from the 2004 DS100 ranking,
Dinar Standard sat down with its rankings
advisor Mr. Aamir Rehman, a Harvard MBA and an
experienced management consultant to Fortune 500
companies. Mr.
Rehman, who has also been a senior associate of
the Harvard Islamic Finance Program and was co-founder
of the Harvard Business School Islamic Society,
provided his analysis by first highlighting the
importance of the DS100 ranking and then breaking
it down into three distinct buckets; 1) surprises,
2) what's missing?, and 3) the obvious trends.
Here
is a summary of his conclusions.
DS100
Surprises - No single region dominates, and an
interesting mix of industries emerging
It
was surprising to discover that no single region
dominates the DS100. Turkey from East Europe,
Malaysia and Indonesia from South-East Asia, and
Saudi Arabia from the GCC region represent the
top four countries in the Ranking. The country
ranking of DS100 also closely correlates with
the largest overall economies of the OIC in terms
of GDP. This trend further validates the belief
that a thriving private sector (reflected here
in DS100 companies) is instrumental to raising
the standard of living in a society.
Even
with a heavy weighting of the Energy sector, only
18 out of the 100 companies in the DS100 belong
to it. Several promising industry clusters can
be identified, including automotive, finance,
construction, transportation and food processing.
DS100 firms from Indonesia, Malaysia, and Turkey
represent a very diverse set of successful companies.
This diversity of DS100 industries is a sign of
increasingly balanced development.
Given
the healthy regional distribution of the top economies
on the DS100 and diversity in industries represented,
there seem to be significant opportunities for
intra-regional trade. Despite the long-standing
perception that not much intra-OIC trade occurs,
the list shows that promising opportunities exist
between at least the big four to trade amongst
themselves.
What's
Missing?
Global Brands; Strong Services Sector
The
DS100 sorely lacks global retail mega-brands such
as Coca-Cola, Nestle, Toyota, Sony, Nokia etc.
With the exception of a few up-comers (Indofood,
Proton, Vestel, Emirates, Koc Holding brand Arcelik),
surprisingly few of the major enterprises in the
DS100 ranking have any globally recognizable brands.
Infact, there isn't really any truly global retail
brand on the list. Instead, most local retail
sector companies compete to distribute non-OIC
based global brands.
Despite
a significant body of shared values and norms
across the OIC, there seems to be a lack of cross
OIC regional brands. Clearly, cultural barriers
such as language represent a challenge to brand-building.
This hurdle, however, has never stopped truly
global brands to penetrate these markets. Building
cross OIC regional brands presents some of the
most viable immediate growth opportunities for
businesses in the region. This is an opportunity
that can be leveraged with much more natural competitive
advantage.
In
addition to a lack of mega-brands, there is also
relatively small representation of the services
sector. The exceptions are finance and transportation.
However, in a post-industrial knowledge based
global economy, the DS100 doesn't appropriately
represent this changing focus. This is a huge
area of opportunity. There is much that can be
innovated in this space. Opportunities such as
hospitality/ restaurants, food products, advisory
and technology services are primed to be leveraged.
In fact, consolidation in key services sectors
can create greater efficiency and profitability
throughout the region.
The
Obvious Risks -
Reliance on natural resources, and dominance of
government owned businesses
A
basic analysis of the DS100 confirms that, it
is quite obvious that there is an excessive reliance
on natural resources, particularly Oil & Gas.
This is not surprising, however the sheer volume
of the revenue weightage (57% of the energy sector)
is alarming. Such excessive reliance on natural
resources is a major risk for the following reasons.
First,
Petroleum and Natural Gas enterprises are mostly
export-oriented, which leads to decreased circulation
of money within the country. In essence, the 'multiplier
effect' is less because there are fewer domestic
parties involved and much of the capital received
in exchange for petroleum is re-invested in non-OIC
economies.
Secondly,
with commodities it is difficult to create sustained
advantage except through access to the commodity
or cost advantage. In the long-term, continued
reliance on commodities is a risky strategy.
Third,
these are capital intensive industries with little
value added on top of the commodity. This is especially
true with crude oil. This lack of value-added
activity deprives the workforce (and entire organizations)
of the ability to develop skills which are transferable
to other sectors.
The
analysis also shows a dominance of government-owned
businesses (30 total government enterprises representing
62% of the total revenues of the companies on
DS100.) Conventional wisdom, however, holds that
private enterprises create more value than state-owned
enterprises because they have more of an incentive
for innovation, growth, and differentiation. In
particular, given the global market economy, a
competitive environment should create more value
than a single-entity. Many OIC governments have
recognized this and, as a result, many privatization
efforts are visible. However, this is a process
that has to be accelerated.
One
interesting question to pursue would be the tradeoff
between taxation and state-owned monopolies. Several
OIC governments levy little or no corporate taxes,
which naturally creates an additional incentive
for entrepreneurship and business activity. Remaining
tax-free, however, relies on state ownership of
key industries (especially natural resources)
- a phenomenon which reduces the economies' overall
competitiveness.
Conclusion
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DS100 Sets an Important Benchmark
Amongst
the myriad of economic news from the OIC countries,
the DS100 Ranking puts a refreshing spotlight
on its corporate activities. Today, much focus
is on government led structural policies, reforms
driven by the IMF or World Bank, government subsidized
infrastructure projects, 5 to ten year plans,
etc., etc. No doubt that structural reforms supporting
a healthy economic environment is the backbone
of any economy, but very little is talked or known
about the equally important private enterprises
or the overall corporate level strategies and
opportunities.
The
ranking is bound to inspire competitive strategies
that raise the bar for market leaders. It allows
its managers and leaders to benchmark against
regional and global leaders. It sets the bar high
for companies to innovate and compete with the
best- both regionally and globally.
I,
for one, look forward to seeing the DS100 evolve
over time as OIC economies and its leading firms
mature. I believe this is a critically important
endeavor, with relevance to all executives whose
companies compete in the Muslim world.
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